Acing acquisitions Featured

1:14pm EDT September 27, 2005
Randy Thurman isn’t willing to court just any company when considering acquisition prospects. He isn’t interested in businesses that just have fancy products, and service alone won’t impress him enough to make a purchase.

“The single biggest mistake business owners make is focusing on the product and not the people,” says Thurman, chairman and CEO of Viasys, a $600-million medical technology company that has sealed six deals in the last few years, three of them in January 2005.

This acquisitions spree is hardly spontaneous. Thurman’s eyes are fixed on Viasys’ three-year strategic goals — to identify new business opportunities, invest in product research and development, and achieve greater growth.

Already, the chosen few are producing numbers that fall in line with Thurman’s expectations. Viasys holds top positions in each market of the medical technology industry that it serves —respiratory care, neuro care, medical systems and orthopedics. In the last three years, Viasys has invested more than $90 million in product development to achieve “best in class” status in the major products for each business. Through the first half of 2005, revenue has increased 19 percent over last year, operating income jumped 56 percent and its stock price has jumped 60 percent in the last year.

Thurman’s expansion strategy is paying off, and he attributes some of the company’s success to its entrepreneurial management structure.

“Viasys is really a company of companies,” Thurman says.

In position to purchase
A strong balance sheet and ample cash flow position Thurman to consider expansion through acquisition, but Viasys wasn’t always this financially comfortable. Like most start-ups, Viasys was cash poor and deep in debt when it was spun off of financial holding company Thermo Electron in 2001. Thurman was recruited to lead the launch.

“The first two years, our primary goals were to eliminate the debt and improve the cash flow from the business operations,” Thurman says.

Viasys introduced new technology to the marketplace, building off of its first major product, the VMAX system for respiratory diagnostics and, immediately following, the AVEA ventilator. But products weren’t enough to generate the cash flow necessary to expand. So to further strengthen the company’s profile, Thurman consolidated facilities and simplified management structures, keeping a discriminating eye on cash flow and eliminating excessive operations costs.

“Every aspect of running a more profitable company, whether it was better products, reducing our costs or paying attention to the balance sheet, we did it all,” he says.

By 2004, Viasys was primed for expansion through acquisition. The company had chipped away all of its debt, accumulated more than $100 million in savings and generated annual operating cash flow of $50 million.

“This [financial picture] provided us with a competitive advantage in that we can move quickly to acquire companies that meet our strategic objectives,” Thurman says.

That’s the tricky part — finding businesses that fit Viasys' profile and Thurman’s standards.

“The challenge is finding high-quality companies and not just acquiring anything that comes along,” Thurman says.

Thurman estimates he evaluates 10 times the number of companies he actually pursues. This year, three made the cut — Micro Medical Ltd., Oxford Instruments and Pulmonetic Systems Inc. Each transaction rounded out Viasys’ product and distribution portfolio in its respiratory diagnostics, critical care and neuro diagnostics businesses.

Thurman believes each acquisition will drive earnings in 2006 and beyond.

“Strategically, these businesses moved us into higher growth segments and moved us into new channels of distribution, such as home care and the physician’s office,” he says. “Our acquisitions have allowed us to accelerate our overall growth and position us for outstanding long-term success.”

The significant six
When Thurman whittles down prospective acquisition potentials to candidates that suit Viasys’ mission and market objectives, he refers to six principles. First, the company must align strategically with Viasys’ core business segments.

Next, prospective companies must introduce new market opportunities or growth opportunities in existing segments. And financial criteria are critical. Thurman want to realize a 20 percent rate of return on acquisitions, and he prefers that companies’ earnings are accretive to Viasys’ overall earnings within the first full year following acquisition.

Then, he looks for companies with products that can be quickly introduced in Viasys’ vast international distribution structure.

Finally, Thurman looks for strong leadership — managers who will thrive in Viasys’ entrepreneurial structure and play an important role in the company’s future. This human element, Thurman says, is the deciding factor. He recalls one of Viasys’ first acquisitions, when the personnel part of the equation was neglected.

“We focused solely on the value of the products they were bringing and we overlooked some important human resources issues,” Thurman says. “We ended up not retaining many of their key people because of that.”

Since then, Thurman tunes into the human assets a company can bring to the table, not just how the tangibles will benefit Viasys. This experience confirmed a lesson he learned in 1990 when he led the integration of U.S.-based Rorer and the French company Rhone-Poulenc. Marrying two corporations with sharp contrasts in management structure and communication style was difficult.

“It was like combining capitalism with socialism,” he says. “The Rorer company was more entrepreneurial — we were less bureaucratic than the French business culture. In the U.S. business culture, we give more responsibility to individuals to make decisions, where in the French business culture, decisions tend to go through multiple layers of management and committees.”

The French called Thurman “Rambo.”

“They saw me as quick to make decisions, quick to take action — they just weren’t used to that,” he says. “The decisions we used to make in an American company based on two businessmen talking in the hall would take a month to move through the levels of bureaucracy on the French side. It was culturally a very difficult integration to accomplish.”

Thurman refers to this experience today when considering which companies will adjust and thrive in Viasys’ environment. Earlier this year, Viasys was considering the purchase of Pulmonetics Systems or a French company. But he didn’t envision a cultural match between Viasys and the French company.

“One of the factors that really became important was that we felt that the cultural dynamics of Pulmonetics was more in line with the culture of Viasys,” Thurman says. “That was the key aspect that led us to acquire Pulmonetics and not [the other company.]”

Meshing cultures “In both of these acquisitions, the companies brought to us expertise in specific channels of distribution that we did not have,” Thurman says. “They are running independently and they may, over time, assume some of the Viasys product responsibilities that go to the physician or home care markets.”

Thurman facilitates a meaningful initiation process regardless of whether an acquired company operates independently or integrates. First, he shares with its employees his six acquisition criteria and identifies why each person is important to Viasys’ success.

“We certainly articulate how important they are to our future,” Thurman says.

Thurman spends time walking the halls of newly acquired businesses so he can introduce himself to employees. He wants them to be able to put a face to the Viasys name.

“For an acquisition to be successful immediately, the people who are running that company have to feel like they are part of Viasys and an important part of our future, and they have to be integrated into the culture of our company,” Thurman says. “We spend the time and energy to do that.”

New personnel are enrolled right away in Viasys’ incentive programs — all employees can participate in a stock ownership plan. And if Thurman thinks Viasys needs to “put our money where our mouth is,” he initiates retention programs to show employees he is serious about keeping them on board.

Still, each acquired business maintains a certain level of autonomy, something Thurman says executives appreciate.

“Generally speaking, I think employees find the cultural transition to a company like Viasys to be much less of a change than they expect,” he says.

Within Viasys’ core business units, each segment has its own division president, and each president has substantial autonomy and significant investment backing for product development, marketing and distribution.

“In many instances, the companies we acquire are still run by the original founder or scientist that invented their technology,” Thurman says. “Even though we have become a large company, we pride ourselves on the fact that we maintain aspects of a young, entrepreneurial company.

“Running a company within Viasys is much more akin to running your own business than it is being a part of a bigger company. That culture is very important to our future.”

Best in class
Research and development is also critical to sustaining growth and market share in the medical technology industry.

“In order to compete globally, you must be committed to innovation,” Thurman says. Viasys has confirmed its dedication to delivering new products to all of its markets with a $90 million investment to ensure its systems and services are best in class. The slogan refers to an initiative to fine-tune every part of the Viasys machine, from the way products are developed to how they reach customers and the support that follows every sale.

Heightening standards and constantly reaching for the next level defines Thurman’s acquisition practices and his commitment to sustaining Viasys’ healthy balance sheet. Just as in the early days, when Thurman notices a weak link, he considers what resources are necessary to rebuild. The Neuro Care business was one of those weak links. Some products were out-of-date, and new competition threatened Viasys’ position. But in the last couple of years, the division has undergone a complete overhaul.

“We started with new leadership to run Viasys Neuro Care and we redeveloped our core products, which the team did in two years,” Thurman says. “We had to rebuild customer relationships that had been allowed to deteriorate.”

In the second quarter of 2005, the Neuro Care division achieved 75 percent growth over 2004. It now boasts talented management, a new product portfolio and strong sales.

Neuro Care accounts for 25 percent of Viasys’ overall business; Respiratory Care accounts for half of total revenue, and the remaining 25 percent is divided between Medical Systems and Orthopedics.

In each business, Thurman challenges leaders to identify growth opportunities and the ways their respective markets can maintain best in class status. Many times, these assessments result in acquisitions to broaden market reach or extend the family of products.

“Traditionally, we’ve been the strongest competitor worldwide in the respiratory diagnostics side of the business,” Thurman says. “So, we challenge them to [determine] what products or business segments we could move into to increase our growth. As a result, we started a business in clinical services.”

When Viasys acquired Micro Medical this year, it gained access to promising distribution opportunities in physicians’ offices and home care markets. While certain subsegments of Viasys’ critical care business were strong, such pediatric ventilation, other segments were untouched.

“In that case, we developed products in our R&D labs to address some of those markets and we acquired a couple of companies to address other higher growth markets,” Thurman says. “Our balance sheet will allow us to continue to be opportunistic. In the next three years, customers can expect to see new products and services developed internally and a reasonable number of acquisitions that will help us meet our strategic goals. The combined result of that will continue to generate higher overall growth than the industry average.”

Although Thurman’s children are the only ones who still occasionally refer to him by his action-figure moniker, he uses that no-nonsense approach to leadership and view on expansion and success.

“Lead, follow or move aside,” he says.

And integrity is an absolute.

“A lot of times when you acquire companies, they come from a box mentality,” Thurman says.

“And many people think product companies just build boxes.

”We don’t build boxes. The systems that we develop and manufacture change people’s lives —literally save people’s lives. We are in the business of improving the quality of human life. When companies [we acquire] learn our mission, right away they find it inspiring.”

How to reach: (610) 862-0800 or